The following Financial Services guidance note Produced in partnership with Rosanna Bryant of Addleshaw Goddard provides comprehensive and up to date legal information covering:
Conduct risk is the corner stone of the Financial Conduct Authority's (FCA) regulatory approach where:
consumers get financial services and products that meet their needs from firms they can trust
markets and financial systems are sound, stable and resilient with transparent pricing information, and
firms compete effectively, with the interests of their customers and the integrity of markets at the heart of how they run their businesses
The FCA recognises that conduct risks can evolve in a number of different ways in different markets and over time, which can pose a risk to the FCA's objectives. Conduct risk can present itself in various different ways but are typically driven by the same underlying issues:
Inherent factors—these are characteristics found within financial markets and their participants. These are drivers of conduct risk that interact to produce poor choices and outcomes for consumers in financial markets. The combination of supply-side market failures with demand-side weaknesses can result in poor customer outcomes. With these factors the operation of behavioural economics plays a key role whereby information asymmetries (where one party in a transaction has more or better information than the other) and consumer biases (systemic behaviours that consumers and market participants demonstrate in decision-making) can interact to mean that consumers make poor decisions when they purchase financial services products.
Structures and behaviours—these are the
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